What is leverage?

What is leverage?

If you’re going to trade CFDs or Forex at, for example, Plus500, iForex, or Markets.com, it is advisable to carefully read this article. It is important to understand the working of leverage. Through not understanding the risks of leverage many novice investors and CFD traders have already lost (part of) their investment.The leverage effect works as follows:

If you trade with a 1:10 leverage, you can buy € 10 of securities for € 1, if you trade with a 1:400 leverage, you can buy € 400 of securities for € 1. The advantage is that you require less money to open a position in different CFD stocks, commodities, and currencies. And because you require less money for a single trade, you can diversify your risk more easily. The only drawback to trading with leverage is that when you have your entire balance invested in a single position, a slight decrease or increase of the share price could make you lose your entire deposit.

Tip: in order to try and learn CFD trading in stocks, commodities, indices, and currencies with leverage, it is recommended to open a free demo account with Plus500 or another online broker.

Compare different brokers and their leverage ratios in the table below: